UK retail goes upmarket

The UK retail market is moving away from the cut-price wine that was its benchmark for years, with supermarkets looking to entice consumers into buying more premium offerings instead. Arabella Mileham investigates.

In the past year, there have been seismic shifts in the UK retail scene, from the inexorable growth in market share of the discounters to the volatile exchange rates following June 2016’s Brexit bombshell.

Set against the well-rehearsed range changes over a number of years, big grocery retailers have been forced to evolve dramatically to meet the challenges of a shifting landscape.

The steady encroachment of the discounters has prompted a reassessment by the established retailers in terms of ranging, strategy and pricing. Helen Stares, client team manger at Nielsen, says all of the big four retailers – Tesco, Sainsbury’s, Asda and Morrisons – are losing market share overall as the discounters continue to drive sales.

Together, Aldi and Lidl now comprise around 12% of the overall grocery market (overtaking The Co-op and Waitrose to become the fifth- and seventh-biggest supermarkets respectively in the UK), with market analysts expecting this to increase even more over the next few years.

Both discounters have used headline-grabbing, time-limited wine offers to tempt customers into stores, and the launch of Aldi’s online wine platform in January 2016 has been used to tempt customers from outside of its core heartland as it looks to bump up its store estate.

As Aldi’s wine buyer, Mike James, points out: “Even if they are only window shopping, it gets the range from Aldi into the psyche more, and people who haven’t been in store will get the message anyway.”

According to Stares, the main challenge is price. “The big retailers struggle to compete here, and while shoppers know the discounters don’t have the breadth and depth of range that the big retailers have, they are willing to accept this in return for lower prices.”

Ayo Akintola of Oddbins

But is it just about price? Julian Dyer, general manager of Australian Vintage, argues that it does the discounters a disservice to dismiss the ranges as “just a cheaper value proposition and nothing else.

In some cases it’s a strong value proposition – good-quality wine at a very good price – and they have some very good buying teams. I certainly think it has forced the industry to reassess things,” he argues.

Drinks supplier Off-Piste’s co-founder, Paul Letheren, agrees. “Looking at the things Aldi and Lidl have done with parcels, as well as the middle of the range, I think they’ve been very adventurous – they’ve not been scared to push things through.

They are really making the main retailers work harder and be more adventurous to take them on, as they can see it’s a threat and isn’t going away.”

So what effect is this having on the wine ranges in other retailers, both the mainstream grocers and the specialists?

According to Robin Copestick of supplier and brand owner Copestick Murray, the changes to ranges and cuts have created a “much clearer”, tighter range definition in the UK, which is better for the retailers, suppliers and for shoppers.

“Retailers that are listing what they consider to be big brands that give added value, and then doing some tertiary listing and their own-label wines are driving the category,” he says.

“From a grocer’s point of view, it makes sense as there was lots of duplication before. Now it is a much simpler offering that suits the business the grocers are in. And wine specialists, who need a broader offering than, say, Tesco or Sainsbury’s, have also been improving their ranges.”

Asda, for example, slashed around 25% of its wine range last May to “rebalance” the portfolio and effect a “sea-change” in the shape of the revamped portfolio, completing a move started two years ago. Around 200 wines were stripped out, and more variety was included at the £7-£10 bracket.

By contrast, The Co-op has started to build up its overall range again following a big cutback last spring, with a greater emphasis on using sales data to define the range, as well as an increase of tailoring by cluster stores. Oddbins is taking a punt on natural wines – a move head buyer Ana Sapungui MW admitted was “sticking its neck out”, as well as revamping its Spanish collection with fresher styles, and boosting the number of sparkling wines and grower Champagnes. Marks & Spencer is boosting lesser-known Californian wines in its latest range refresh.

As Kantar Worldpanel’s data has shown, own-label, whose growth has been very well-choreographed in recent years, has been a strong performer in recent months, but its growth, (along with tertiary brands and private labels) has led to “a perception of dumbing down or a lack of choice”. But the perception doesn’t always match the reality, according to Dyer.

“There may have been a few years when that did happen, but I think there’s been, not so much an awakening, but a degree of knowledge that if you’re going to shorten the range, there is sufficient quality and choice for premiumisation, as people are prepared to pay more for that if you give them a good rationale to do so,” he says.

Majestic has also upped its focus on own-label range, adding an entry-level Majestic Loves range to sit underneath its existing Definition offering. Buying and merchandising director Richard Weaver told db last year that hopes that own- label sales will go from the current 4% of total sales to around 20% in due course. Kantar Worldpanel has recorded the premier own-label tiers as seeing the greatest growth in the big four, so while most agree that entry-level or own-label may have reached saturation point, there is still scope at the mid- to premium end.

Discounter Aldi has stolen a march on more established wine retailers

In spring 2017, Tesco and Sainsbury’s bolstered their premium own-label ranges as part of range reviews, with Tesco adding 10 new ‘top-tier’ wines to its Finest range, as well as four more sparkling wines in time for Christmas. Meanwhile, rival Sainsbury’s cut back the lower £5-£5.50 tier to expand its premium wines and add in more regional variety and a few firsts, such as its first US wine in the Taste The Difference range; a Californian Zinfandel from Chronic Cellars.

Morrisons also extended its premium own-label The Best range, as well as adding the Workshop Wine Company, a range of Australian wines that offer an alternative to big brands, and refreshed the portfolio with wines from South Africa, Southern Italy and the South of France.

More recently, Waitrose has refreshed its mid-tier own-label as the new Blueprint wine range. The benefit of having a coherent design across the tier, as opposed to more individual bottles, is likely to tap into the confidence shoppers have in own-label wines by making it clearer that this is what it is.

Premiumisation seems to be the direction of travel, as retailers overall expand their range of wines at £7 and above. Speaking to db in a recent interview, Concha Y Toro’s UK general manager, Simon Doyle, talked about the “significant step change” in the wine aisles that has created the best “range architecture” among the retailers.

According to data from market-research company IRI, the number of skus in the £5-£6 price bracket had fallen by 47, with 86 fewer lines on shelves in the £6-£7 bracket, while the number of wines costing more than £8 had risen by 43.

Supplier and brand owner Paul Letheren points out that ‘premium’ is “almost becoming the norm. People can have decent wine for the price. It’s not all about cutting every corner or making it look pretty on the label, but decent wine inside the bottle too,” he argues. Because of this, producers, suppliers and retailers are having to work a lot harder to find the buying opportunities.

Rowan Gormley, CEO of Majestic Wines

“Brexit, duty increases and last year’s harvest shortages in Spain, France and Italy are prompting different buying decisions and making buyers look at different areas.”

Letheren adds: “You have to work harder to look at some blends to come up with the best stuff, or maybe commit to some large parcels.”

Retailers and customers must take “a leap of faith” to realise that these wines will sell, and there’s a market for them if you put them on shelf. But Dyer says this message is getting through.

“There’s an opportunity, and we need to do that as much as we can because we’ve got terrible exchange rates, and I can’t see any improvement in the short term.”

It is, he argues, a fundamentally important issue to keep value in the category to be profitable.

So where are buyers looking for growth? Portugal has proved a surprise hit, as Aldi and Majestic attest. Majestic’s exclusive Portuguese Porta 6 is the retailer’s best-selling red wine.

Aldi’s Mike James argues that the generation that knew Portuguese wines in its 1970s heyday has long since moved on, and shoppers are buying it now on its own merits. “We’re trying not to run before we can walk, so it is from the Duoro, as it’s the most wellknown area, and we hope to get traction with that then try lesser-known regions to give even better value.”

South Africa is also enjoying a moment, with Oddbins, Marks & Spencer, Morrisons and online retailer Virgin boosting their ranges of South African wines, particularly the new wave of wines from up-and-coming producers.

Speaking to db in 2016, Simon Cairns, category manager at The Co-op, argued that targeting price points between £7-£10 “future-proofs” the category.

“We are not flooding entry-level products in there, but trying to build an interesting, credible range that is good value for money,” he pointed out. “That is sustainable going forward, and as an industry we don’t have to strip quality and value out of the market.”

There has been a huge amount of pressure on cost through factors beyond anyone’s control, from Brexit-related exchange rates, duty, freight and harvest problems, he admitted, and the challenge is future-proofing the range to maintain the consistency on the retail price.

“We have to look at the range and how we build value into it. How do we maintain a price hierarchy and how do we expose ourselves less to these fluctuations that come our way?” he asked. He added that asking of every new product ‘Will it cannibalise anything in the range or add something new?’ has led buyers to search for “real points of interest”.

“That’s where I want to be looking – a Grenache Blanc grown in South Africa or Cinsault, which is probably away from the norm but if it offers something unique, then that’s great.”

Oddbins’ Sapungui agrees that moving away from price point means employing new strategies. “When you go through tough times, it forces you to think out of the box,” she notes. “We’ve always done that, but more so this year, and we’ve all been a bit more aware of it.

So even when you tell the new story of a range review, you talk about other things rather than always value – it is from this amazing old vine, and the winemaker does it this way, and it happens to be £8 – but it’s just the way you tell it.”

As Majestic Wine’s buying and merchandising director, Richard Weaver, told db in July 2016: “There is not a lot of good news in terms of the abundance of the harvest, currency movements or duty, but it’s a big world of wine, and our approach – and so far our customers’ too – is to be more experimental and canny in seeking out value.

There are still parts of the world that over-deliver in terms of quality and value, and, over time, those are the trends we will see.”

Along with ‘premiumisation’, EDLP (everyday low pricing) has become the latest buzzword in the BWS aisles, apparently sounding the death knell of the year-round big promotional deals.

These offers still have an occasional role to play at certain times of the year, such as Christmas, Easter or bank holidays, encouraging shoppers to buy things they might not have done otherwise.

“Retailers are doing a good job of wine festivals,” says Letheren. “Waitrose, for example, has been doing a 25% off category, or offering six bottles for the price of five to get people in, so the promotional dynamic has changed a bit.

Buyers get very excited about their wine festivals, as they can buy parcels of wine for a specific thing, or promote wine they wouldn’t normally be able to promote. If you get consumers involved directly or through promos in store, it’s got to be good to create more interest and get people buying better and more interesting wine.”

Recent data from retail researcher company Assosia showed that the number of deals on wine was slashed by around 34.5% in September 2017 compared with the same time the previous year, and analysis by IRI during the summer found that overall discounts for consumers in the BWS aisle had also fallen year-on-year.

But, as Dyer points out, people are still buying, despite some fears by retailers that this might not be the case. So this new norm is, as many producers have commented, “healthier”, and makes life easier for brand owners and suppliers because brands aren’t offset so much by heavy promoting.

“We’re presenting new products and ideas to retailers because we have a fantastic new wine brand or something innovative, rather than having to create things that could be heavily promoted, as would have been the case three or four years ago,” Copestick says.

However, the flip side of this is that because EDLP has boosted strong brands that have consumer recognition, some brands are suffering from ‘me-too’s, with tertiary labels that ape well-known brands appearing on the market in an apparent bid to cash in on their popularity – and it is hard for producers to fight back.

As one industry insider said: “It is basically piggy-backing on the back of a brand’s hard graft they might have spent years building up. I get it from a retailer’s point-of-view and harsh reality of the market, but I don’t particularly like it.”

Tesco opened a Finest pop-up wine bar in Soho, London

There are, however, opportunities other than premiumisation and own-label, with innovative and different formats also an area of growth. In recent months, more larger formats have appeared on shelf. Aldi, for example, now offers a Jeroboam of Prosecco, as well as magnums on popular lines such as Argentine Malbec, while Waitrose is looking to a more upmarket bag-in-box format.

Retailers are also looking at innovative fractional bottles at the other end of the spectrum. Waitrose brought out its first own-label half-bottle range aiming squarely at the mid-tier last October, and The Co-op boosted its range of single-serve formats, adding innovations such as the new Most Wanted 187ml pouches. Meanwhile, Aldi and Morrisons have dabbled in craft beer-style bottles to attract younger consumers who might naturally gravitate towards craft beer or cider.

These moves in particular suit the convenience market, which Nielsen analyst Helen Stares points out is where a big opportunity for the retailers lies, through smaller stores that cater for the top-up shop.

The desire to develop this area has prompted a more imaginative approach. Not only are some of the bigger names tapping into their own convenience estate, but also pushing strategic alliances and acquisitions and looking at wholesale supply.

Much like Bargain Booze/Conviviality’s surprise acquisition of first Matthew Clark then Bibendum PLB to create drinks supply behemoth Conviviality PLC, they are keen to manage more of the supply chain and reach wider numbers of consumers, while also boosting efficiency through greater synergy.

James Walton, chief economist at IGD, highlights the change in the way food retail companies operate and the way it is driving structural change in the supply chain, with technology influencing business structure.

“In a price-competitive market, where volume growth is limited, it is no surprise that retailers are considering partnerships to increase their scale quickly,” he says.

Sainsbury’s tie-up with Argos – while not directly relevant to the BWS aisles – or the proposed Booker-Tesco merger, which is being investigated by the Competition and Markets Authority, points to the way forward. The latter will take the UK’s largest seller of wine into the growing convenience and food-service sector, while Morrisons’ wholesale deal with Amazon and more latterly with McColl’s, and The Co-op’s current negotiations to acquire wholesaler Nisa are likely to significantly broaden their customer base and availability of their wine ranges.

As well as increasing their customer bases, retailers are increasingly engaging with consumers more directly. Although boosting service is notoriously difficult in a traditional big-box retail setting, retailers are getting around this by rolling out wine-based events in store and out of it.

This blurring of lines between the ontrade and off-trade has seen a plethora of pop-up shops and bars in the past 18 months – from Tesco’s Finest bar taking its Wine Festivals to another level, to Aldi’s pop-up in London’s Shoreditch, and Waitrose Drinks Festival. Others are tapping into the base via social media, consumer competitions and panels, and consumer-sourced wines.

So it seems that with novel formats and innovative collaborations, retailers are having to become creative to forge a path through the tricky commercial climate. Change is never easy, but Letheren strikes a positive note.

“The wine market is exciting at the moment. I know some people are all doom and gloom, but there’s plenty going on, and the wine has been getting better, tastier and more innovative.”